Saturday, January 17, 2015
Latest rate cut signals turnaround of India’s economic cycle: Jayant Sinha, MoS, Finance
Jan 16, 2015: ET Now caught up with Jayant Sinha, MoS, Finance, for his views on the interest rate cut by the RBI. Excerpts:
ET Now: Are you surprised by this out-of-turn rate cut by the RBI?
Jayant Sinha: I am not surprised. I have said all along that the RBI is a very professional and competent institution. They are very data-driven. They have access to an understanding of both data as well as what is happening in a variety of markets — be it the Indian equity markets or the currency markets in Singapore.
Having looked closely at all the data, they must have concluded that they were now in a position to see lower rates. Of late, all of us were seeing the data move in a certain direction. To that extent, I am not surprised at all.
ET Now: In the press release, the RBI has said that once the monetary policy stance shifts, subsequent policy actions will follow. Going by this, should one assume that it is just the start of a rate cut cycle?
Jayant Sinha: It is important to note that we are at an inflection point in the cycle. The RBI had tightened rates significantly by the time Governor Rajan came aboard. Thereafter the rates were held steady for quite a long period because it was important to gain control over inflation.
The fact that they have now moved in the opposite direction would indicate that they are coming out of that phase. It shows they are entering an altogether different phase. That is why it would be an important inflection point.
ET Now: How is the government going to incorporate this rate cut in the upcoming Budget? Do you think it will influence you in Budget decisions?
Jayant Sinha: This rate cut signifies a very different economic growth trajectory. The UPA government had handed over to us a difficult regime — a story marked by high entrenched inflation, low growth, and high fiscal and current account deficit. Ever since we assumed the reins, we have been trying to turn around the negative macroeconomic indicators.
In our efforts to bring the economy back to growth path, we have had to work through these challenges and problems. We have now got a grip on those challenges, and we have passed through the phase of consolidation and adjustment. Now we have entered a phase of accelerating growth.
ET Now: Many people are of the view that even a rate cut is not going to help the investment cycle pick up. What is your sense on that?
Jayant Sinha: To my mind, the rate cut at some level indicates the turn of the economic cycle. We are at a point where the economic momentum has turned quite positive. There is significant optimism about the future and new investments are beginning to come in.
Given all this, my sense is that the latest rate is cut an indication of what is already happening on the ground.